Official Airline Guides, Inc. v. F. T. C.

• Decision Date: 18 September 1980
• Docket Number: No. 1217,D,1217
• Citation: 630 F.2d 920
• Parties: 1980-2 Trade Cases 63,544 OFFICIAL AIRLINE GUIDES, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. ocket 80-4028.
• Court: U.S. Court of Appeals — Second Circuit

Page 920

630 F.2d 920

1980-2 Trade Cases 63,544

OFFICIAL AIRLINE GUIDES, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 1217, Docket 80-4028.

United States Court of Appeals, Second Circuit.

Argued June 17, 1980.

Decided Sept. 18, 1980.

George W. McBurney, Sidley & Austin, Chicago, Ill. (Elroy H. Wolff, Thomas J. Hearity, Sidley & Austin, Washington, D. C., Edward Wolfe, White & Case, William H. Buchanan, Jr., New York City, on brief), for petitioner.

Howard E. Shapiro, Washington, D. C. (Michael N. Sohn, David C. Shonka, W. Dennis Cross, James C. Egan, Jr., Steven A. Newborn, Federal Trade Commission, Washington, D. C., on brief), for respondent.

Before OAKES and VAN GRAAFEILAND, Circuit Judges, and NICKERSON, District Judge. ^*

OAKES, Circuit Judge:

This appeal raises the question whether a monopolist publisher of flight schedules not itself an air carrier has some duty under the Federal Trade Commission (FTC) Act not to discriminate unjustifiably between certificated air carriers and commuter airlines so as to place the latter at a significant competitive disadvantage. Petitioner, Official Airline Guides, Inc., which took over publication of the Official Airline Guide from The Reuben H. Donnelley Corp. (Donnelley) in 1979, challenges an FTC order, In re The Reuben H. Donnelley Corp., (1980) 3 Trade Reg.Rep. (CCH) P 21,650. The order requires Donnelley to publish in the North American edition of its guide, known as the "OAG," connecting flight listings for commuter airlines in the same manner as it publishes connecting flight listings for certificated airlines, and to refrain from arbitrarily discriminating against any air carrier or class of carriers in publishing connecting flight listings. The guide is a semi-monthly publication that provides detailed information on flight schedules and fares in North America. We find the petitioner's three defenses-that (1) the FTC lacks jurisdiction under the Act to regulate petitioner in this case, (2) there is a lack of substantial evidence in the record to support the Commission's findings, and (3) the petitioner's voluntary compliance prior to conclusion of the FTC proceedings prevents a cease and desist order-all to be unavailing. At the same time we find for the petitioner on the merits of the underlying legal question and we do not reach petitioner's First Amendment defense to the order.

Since 1969 the North American edition of the Official Airline Guide (OAG), the "bible" of the industry, has been the only publication distributed in the United States that combines the North American passenger flight schedules of all scheduled domestic air carriers. It is the "primary market tool of . . . virtually every (air) carrier . . . in the United States," and is the standard reference for airline ticket offices, travel agents, businesses, and the public generally, although it has apparently been displaced to some extent by computerized scheduling.

At the time the Commission's complaint was issued in this proceeding, the (OAG) contained four categories of flight schedules: (1) direct flights of certificated carriers, that is, flights which do not involve a change of aircraft between two cities; (2) connecting flights of certificated carriers, that is, flights involving the use of one direct flight in conjunction with another to provide transportation between two cities; (3) direct flights of intrastate air carriers; and (4) direct flights of commuter air carriers. Under Donnelley's publication policy a user of the (OAG) was not readily apprised of connecting flights of commuter air carriers. For example, there are no direct flights between Los Angeles and Rutland, Vermont, and the (OAG) listed only those connections involving certificated carriers. A user of the (OAG), therefore, might be directed to Rutland from Los Angeles by way of Boston, because all three cities are or have been served by direct flights of certificated carriers. A user of the guide, unless he "constructed a connection," would not be informed of commuter connections from intermediate cities, such as New York or Hartford, which may not serve Rutland by direct flights of certificated carriers, even though these cities may be more convenient to the Los Angeles traveler than a flight through Boston. "Constructing a connection" obviously requires looking for direct flights serving points intermediate to the two cities between which the traveler is flying. Because constructing a connection is difficult and time-consuming, it is important to have connecting flights listed in the OAG. Certificated carriers paid Donnelley in 1975 alone hundreds of thousands of dollars in order to have their flights listed.

As a result of OAG's failure to list the connecting flight schedules of commuter airlines, the Commission found that the latter were handicapped in competing with certificated carriers in markets that were served by both, which included some 432 "city pairs" as of April 1975, a "city pair" being two cities between which there is scheduled airline service. Commuter airlines sought as early as 1969 to have Donnelley publish commuter connections in the OAG. At one time, Donnelley representatives did sit down with the certificated carriers' trade association, the Air Traffic Conference, to discuss the commuter connection problem, but evidently the certificated carriers were not interested in the increase in competition, and the subject was dropped. It may be noted parenthetically that the administrative law judge's finding that there was a conspiracy between the certificated air carriers and Donnelley was overturned by the full Commission.

In 1975 the FTC staff undertook an investigation into Donnelley's publication policies and Donnelley then expressed a willingness to modify its practices without, however, agreeing to do so in a binding or enforceable agreement. On April 13, 1976, the Commission issued its complaint, charging that Donnelley had violated section 5 of the FTC Act, ¹ first, by refusing to publish the connecting schedules of commuter air carriers; second, by failing to merge the direct flight schedules of commuter air carriers that it did publish with similar schedules of certificated carriers; and third, by conspiring with others in restraint of trade. The administrative law judge found against Donnelley on all counts, but the full Commission reversed him as to the second and third counts, holding that Donnelley had sufficient business justification for not merging into a single listing the schedules of commuter air carriers and certificated carriers, and that the record did not support a finding of any conspiracy. The Commission did, however, affirm the administrative law judge in finding a section 5 violation in Donnelley's arbitrary refusal to publish the connecting flight schedules of commuter air carriers. The Commission's order directed Donnelley to "cease and desist from failing to publish connecting flight listings for commuter air carriers pursuant to whatever guidelines govern the publication of connecting flight listings for certificated carriers" and petitioner filed the pending petition for review, as to which we have jurisdiction under section 5(c) and (d) of the FTC Act, 15 U.S.C. § 45(c)-(d).

I. Jurisdiction of the FTC

Petitioner's first argument is that the Commission lacks jurisdiction over it in this case. ² Section 5(a)(2) empowers the Commission "to prevent . . . corporations, except . . . air carriers . . . subject to the Federal Aviation Act of 1958, . . . from using unfair methods of competition . . . and unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(2). ³

Donnelley is not subject to the Federal Aviation Act and, therefore Donnelley is really arguing that the FTC cannot even regulate non-carrier corporations when the FTC's purpose is to prevent unfair competition in the airline industry. But this argument confuses the broad mandate given to the Commission to enforce section 5 with the narrow exemption from the Commission's jurisdiction that is granted to air carriers subject to CAB jurisdiction. The analogous surface common carrier exemption in the FTC Act, as the Seventh Circuit has held, "is in terms of status as a common carrier subject to the Interstate Commerce Act, not activities subject to regulation under that Act." FTC v. Miller, 549 F.2d 452, 455 (7th Cir. 1977). Similarly, here, it is of no significance that the publishing of airline schedules is an activity affecting competition among air carriers subject to the Federal Aviation Act. Since Donnelley is not itself an air carrier, it is not beyond the Commission's jurisdiction. Cf. Breen Air Freight, Ltd. v. Air Cargo, Inc., 470 F.2d 767, 771-72 (2d Cir. 1972) (corporation formed as subsidiary of airlines for purpose of acting as agent for terminal and cartage services was not an "air carrier" within Federal Aviation Act), cert. denied, 411 U.S. 932, 93 S.Ct. 1901, 36 L.Ed.2d 392 (1973).

The only case that petitioner really has to go on is Fruit Growers' Express Inc. v. FTC, 274 F. 205 (7th Cir. 1921), cert. dismissed, 261 U.S. 629, 43 S.Ct. 518, 67 L.Ed. 835 (1923). In that case the Commission had issued a cease and desist order, holding unlawful a contract between the petitioner supplier of equipment and certain common carriers who were exempt from the Commission's jurisdiction. The reviewing court held that the carriers were necessary parties to any proceeding concerning the contract, and therefore the Commission could not enter any order affecting it because the carriers were all subject to exclusive ICC jurisdiction. But in the present case there is no claim that air carriers are necessary parties. The Commission has specifically found Donnelley's action to be unilateral abuse of its market position and has specifically found that air carriers were not parties to the allegedly illegal acts.

II. Substantial Evidence

Petitioner argues...